by Roman Y

Created on: May 24, 2010

It seems that every family, person (at least in United States) these days is somehow tied to financial markets.  It could be through a personal investment account, a retirement plan or a college saving plan.  Well, if one is tied to something it is important to understand what that something can do for and how to deal with it.  So since many of us are tied to financial markets we need to understand where should we invest?  There a few steps to be a successful investor.  The first step is to identify the type of investor one is or wants to be.

Where to invest depends on what are financial objectives and time horizons of that the particular investor.

If you are a 'lazy', long-term investor with not much money available to invest mutual funds are probably the best way to start.  Mutual funds are a pool of bonds, stocks or a combination of financial instruments.  Mutual funds are pretty diversified, hence offering potentially lower risk but at the same time potentially lower return.  Fees are relatively high compared to other ways of investing, but then investment manager does all the work and you just let it ride.  Mutual funds which invest in index typically have much lower fees as opposed to active strategies.

If you are not too active but not too passive either when it comes to investing, a combination of mutual funds and etfs and individual securities might be the way to go.  Here you get a chance to use your brain a bit, though through participating in mutual fund and etfs you have other managers helping your financial goals.

If you are pretty active, then stocks & etfs, as well as Forex and commodities are investment instruments for you.  Here an investor has to rely on his/her own brains and gut feelings to make profits.  This is also probably the most tax & cost inefficient way of investing, since active traders actively buy and sell, therefore triggering tax consequences and commission every time a trade is placed.  Use of discount brokers, such as TD Ameritrade, E-Trade and Scottrade can be useful since they offer low cost trading.  If you do not have much capital to trade then every penny counts and these discount brokers are a very big help.

Once investor figures out what type of investor he is (based on the above), the next step is investment strategies.  But that is the next chapter ladies and gentlemen!

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